AM Markets: Spring Wheat Gains Amid Talk of 100-degree Heat

(Agrimoney) – Is the northern US, where drought is already a worry, really poised for 100-degree heat next weekend?

That is what one weather, the NCEP-GFS, seems to be saying.

“Triple-digit heat is expected to hit this area [North Dakota and South Dakota] within the next seven days,” said Mike Zuzolo at Global Commodity Analytics.

Sure, there is general agreement that weather looks like being more benign than it has been for much of the Corn Belt, boding better for corn and soybean crops after an overly damp sowing period.

But returning to the northern Plains, “if precipitation doesn’t accompany this [hot] weather, we are likely to see most if not all potential improvement in the central Corn Belt crop conditions erased on a national level thanks to declines in three… major corn and bean producing states,” Mr Zuzolo said.

Minnesota, North Dakota and South Dakota account for 18.5% of US corn area, and 23% of soybean area, although it has to be said that yield results for the Dakotas tend to be below the national average.

‘Complete flip-flop’

The trouble with making definitive weather forecasts is their potential for change.

Mr Zuzolo also flagged how computer weather models had made a “complete flip-flop” over the course of a couple of days, a switch which has “resurrected the potential for a hot and dry June” in northern areas at least.

Other commentators were more conservative in their weather outlooks, with Commodity Weather Group, for instance, saying that “Pacific energy feeds better rain chances across the northern Plains” in the six-to-10 day horizon, “to ease stress and heat. But confidence is still low”.

Still, looking further north into another major spring wheat, and canola, growing area, Commodity Weather Group forecast a continued divergence in extremes in the Canadian Prairies.

“Wetness is to continue to hinder northern western Canadian Prairies wheat and canola seeding – dryness may persist in southern Saskatchewan and south western Manitoba,” the weather service said.

Prices edge higher

Whatever, Mr Zuzolo’s takeout was that it made “a case for increased weather uncertainty providing fundamental support” for grain prices, with a particular case for new-crop December corn futures to return above $3.96 a bushel.

They still have a way to go yet, with the December contract on Monday trading at $3.91 ¾ a bushel, up 0.2% on the day as of 09:30 UK time (03:30 Chicago time).

The best-traded July lot was also up 0.2%, at $3.73 ½ a bushel.

Data later

Still, what may be crucial in determining how big a danger weather threats are seen as is an assessment of the current condition of crops – which will come later with the weekly US Department of Agriculture Crop Progress report.

Last week’s reading, the first of the season, came in at 65% good to excellent, a figure which “is well below the ratings of the past 3 years and caused a small stir in the futures market”, Joe Lardy at CHS Hedging said, if noting a weak correlation between early condition figures and final yield.

Water Street Solutions said that “the poor condition start for the east Corn Belt will need a ‘more co-operative season than average’ moving forward” to ensure decent yields.

‘Supportive tilt’

And what is raising the stakes in grain markets, in terms of volatility, is the extent of short bets that hedge funds already hold – a record net short, in fact (including the soy complex) according to regulatory data released on Friday.

This included an elevated, but not unprecedented, net short of 200,000 lots in Chicago corn futures and options.

“Without some type of improvement in the corn crop ratings, I expect the funds to have to cover some shorts” into the middle of this week, said Benson Quinn Commodities.

“The fund position offers a supportive tilt to the corn market.”

‘Problem becoming more vivid’

Stronger price gains were seen in spring wheat, of which North Dakota grows roughly half of the US crop, and with Minnesota and South Dakota accounting for another 20% or so.

Minneapolis spring wheat for July, having in the last session set the highest close in nearly two years for a spot contract, gained 0.4% to $5.86 a bushel.

“Spring wheat futures are making new highs,” said Tobin Gorey at Commonwealth bank of Australia.

“Spring wheat regions either side of the US Canada border remain dry.”

And “temperatures were, as forecast, high over the weekend”, while he focused on forecasts for   “further hot periods over the next week or so but also… little rainfall.

“A problem for these crops is becoming more vivid in the market’s imagination.”

‘Disappointing for protein’

This time, Chicago winter wheat, the world benchmark, kept up in percentage terms, adding 0.4% to $4.31 ¼ a bushel, amid some worries over the wetter Midwest weather benign for corn in the area slowing the harvest.

Rains are an issue too for the hard red winter wheat harvest in the southern Plains, where MDA forecast further wetness, saying rainfall “in west Texas will improve moisture but slow wheat harvesting”.

And moisture poses a threat to quality too, which is already looking a little short, from early results.

“Early harvest results for hard red winter wheat looks to be disappointing for protein,” said CHS Hedging’s Joe Lardy.

“Last year was really low at only 11.2% but this year’s early cuttings are only coming in around 10.5%.”

‘Abandoned crop’

In fact, some of the comments from the latest harvest report from US Wheat Associates were less than encouraging, with the group saying that “rainstorms continue to hit northeast Texas, significantly slowing harvest in that region.

Furthermore, “a high percentage of wheat acres in southwest Oklahoma extending southward into central Texas have been swathed for hay, or otherwise abandoned, in favour of planting cotton”.

Weekly winter wheat crop ratings from the USDA later will be closely watched too.

China worries

Chicago soybean futures showed more marginal gains, adding 0.1% for July delivery to $9.22 ¼ a bushel, battling against continuing concerns over Chinese demand.

“There is a lot of chatter about China cancelling or delaying soybean cargoes,” CHS Hedgings Joe Lardy said.

“Soymeal values have dropped sharply so crush margins are no longer attractive. May and June should see big imports in China but numbers should fall off in July forward.”

Terry Reilly at Futures International said that, as of Friday, “China cash soybean crush margins were negative $0.19 a bushel versus negative $0.03 late last week, and compares to positive $0.47 a year ago”.

Reuters data shows China Shandong cash crush margins at a 33-month low of 353 yuan, or $51.79, a tonne.

Soyoil in demand

That said, soybean futures on China’s Dalian exchange performed well overnight, adding 1.2% to 3,812 yuan a tonne for September, recovering further from levels last week which neared contract lows.

Soymeal futures for September, which did hit a contract low last week, of 2,604 yuan a tonne, added 1.0% to 2,655 yuan a tonne.

Dalian palm oil for September closed unchanged at 3,894 yuan a tonne, a mood reflected somewhat in Kuala Lumpur, where the vegetable oil was just 1 ringgit higher at 2,498 ringgit a tonne.

Rival vegetable oil soyoil fared a bit better in Chicago, adding 0.3% to 31.10 cents a pound for July delivery.

CHS Hedging’s Joe Lardy noted that whole soyoil “has not captured a lot of the headlines, US soyoil [export sales] commitments are moving along at a nice pace.

“Total commitments are the highest point for this timeframe in the past six years.”